So after following the Fool, Morningstar and a couple of other sites, now I feel like I have to make changes, but I'm afraid to do the wrong thing. I've got about $20,000 in a taxable account, split between three big funds. Two are OK but not, of course, matching the S&P. One was sort of a dog in 1998, but is now at 24% YTD. The others are around 15%. I also have $13,000 in an IRA, divided pretty much the same. I think I need to at least reallocate to index funds, maybe Vanguard 500, etc., but I understand the minimum is $3000, which seems like a chunk to be moving at any given time. I also just started a 401K this year, witholding 15%, divided between their "Aggressive" mix, equity, growth, foreign, special equity--no index option available. I have 30 years until retirement. Do I dump all of it immediately for index funds and forget about it, or do I do it gradually to minimize the capital gains nightmare and go for dollar averaging. I'd try the Foolish recipes but I don't have enough confidence to "bet the farm". Any thoughts?
I'd try the Foolish recipes but I don't have enough confidence to "bet the farm". Any thoughts? You have already "bet the farm" on funds you yourself have determined are lagging behind the SP500 index. Why did you choose those funds? If you put it all into and S&P500 index fund, you are "betting the farm". If you leave it like it is, you are still "betting the farm". Know why you have made the choices you have, and then think about why you would move into index funds. Compare the funds to the S&P 500 index for the long-term (over 5 years). Have they consistently beaten the index? I kind of doubt it - only about 10% do. Good luck, but remember, whether you change your the mix in your portfolio or not, you are still betting the farm!Taylor
The galeno strategy says, pay the taxes now and get into something better. If you want to stay conservative and get great returns, look into 100% index funds. You can also split portfolio 50% index funds and 50% Foolish Four (R) or 1/3 index funds, 1/3 R and 1/3 Keystone (K).I myself invest in a 12 stock mechanical combo portfolio consisting of 1/3 R, 1/3 K, and 1/3 PEG (E). For short, that's called RKE. The RK portion gives me solid reliable returns. With E, I shoot for the stars.
If the funds involved are large, and there are taxes to be paid in the transfer, personally, I would make the transition to index funds in stages spread over at least two tax years. This can reduce the tax burden (if it keeps you in lower brackets) and gives you dollar cost averaging so you don't happen to buy all your index funds at a temporary high. Of course, if you decide to do Foolish Four, the answer may be different, but you can still put the bite into at least two tax years.
Greetings, Caleb, and welcome to the Fool!You have gotten good advice already. I'll just make a few small points:...but I understand the minimum is $3000, which seems like a chunk to be moving at any given timeWhen you've got $33K invested, $3K isn't much of a move. Yes, it's a nice chunk of change, and you wouldn't want to lose it. But moving and losing are two different things.do it gradually to minimize the capital gains nightmare ...The 'capital gains nightmare' is partly that you have to pay taxes, and partly that you have to figure how all those reinvested divdends affect your basis. If you make a series of small moves, you can spread your taxes out, but you have even more record-keeping to do. And paying the taxes isn't totally bad. After shifting your funds, you'll have no unrealized capital gains, which reduces your future taxes....and go for dollar averagingIMO, dollar cost averaging is greatly overrated. It does apply, somewhat, when you're making new investments. But that's not what you're doing. When moving money from one investment to another, the effect is much smaller.I don't have enough confidence ...If, despite all you read here, you still aren't comfortable with moving your funds, then do it slowly. It has to be right for you. But track your returns, and keep reading.Fool on!Michael
Check out the link at the end of my Interview. I posted some suggestions about evaluating one's mutual funds to transition to better funds and investing.Remember that index funds aren't your last investment vehicle. Sell off your poorly performing funds for index funds. Learn to invest in stocks. Sell off your other funds for stocks.Washu! ^O^
You've gotten a lot of good advice here. I just want to add a few suggestions.Calculate the difference between your marginal tax rate and the capital gains rate. If you invested in the Foolish Four and earned about 20% over the next few years, how much more is that than your current return? How long will it take to recover the extra taxes? Rember most of your funds will be taxed at the capital gains rate anyway. Its only the additions that have occured in the past year that you are concerned with. You can do the same with the S&P index just use a return of about 10%.I understand your concerns about betting the farm. As someone pointed out you are betting the farm whatever you do or do not do. I think its best to spread the risks including the risk of earning too little, over a variety of good stratagies. Instead of putting all of your farm in the S&P, put some in the RP4 and in Rule makers. Chuck
Thanks Fools! I have one more question. My brokerage has just added an online feature for $25.00 per year. Is that expensive? With your support, I'm prepared to make some foolish changes. Thanks again!
Well, Coleb, I'm glad to hear you didn't get overwhelmed by all the enthusiastic advice we gave you.$25/year isn't much, but what do you get for it? What are the commissions on trades? There are lots of discount brokers offering trades under $20, and for $30 you can get trades and advice at Schwab.Fool on!Michael
<<<, now I feel like I have to make changes, but I'm afraid to do the wrong thing.>>>Too early for a Super Bowl reference? The reason for some poor performances of teams and/or individuals in this one game, overhyped, winner-take-all championship is that some are afraid of making a mistake that will cause them to loose the game. They aren't concentrating or visualizing the acts or "risks" that will allow them to win the championship.JLC
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